Apple (NASDAQ:AAPL) usually has its finger on the pulse of consumers, knowing the type of products they want and the maximum price they're willing to pay. The $1,000 iPhone X is a perfect example: It has been Apple's best-selling iPhone since it was introduced last November. And Apple just released its iPhone XS Max, priced at $1,100.
But did Apple completely misread the market for smart speakers with its high-priced HomePod that gives buyers immersive audio when all they really want is a low-cost model to operate the TV and lights?
Taking the low road
Consumer Intelligence Research Partners says the $349 HomePod is trailing badly in the smart-speaker market with only a 6% share. Consumers instead buy devices from Amazon.com (NASDAQ:AMZN) and Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google at substantial discounts for $40 to $50. Those devices are also frequently given away with other purchases.
Other research shows Amazon's Alexa-enabled speakers continue to lead the market with about a two-thirds share, while Google is second with 28% (and growing). By pricing its speaker so far above the competition, Apple might have doomed the HomePod to be little more than a niche product.
But it might not be fair to compare the HomePod to the Amazon Echo Dot or Google Home Mini because their purpose is somewhat different. When Amazon introduced its Echo, it was an artificial-intelligence powered virtual assistant, helping people control their connected home and make online purchases (although shopping hasn't been quite as big a deal as originally hoped). Apple's HomePod was designed first and foremost as a speaker; the virtual assistant stuff is simply an added feature beyond great sound quality.
That puts the HomePod in a separate category alongside high-end speakers from Bose and Sonos (NASDAQ:SONO), whose customers are audiophiles looking for quality. While most people do use their voice assistants to stream music, they are apparently satisfied with the sound quality from devices powered by Amazon Alexa and Google Assistant.
Still, in regard to audio, Apple's strategy is working. My colleague Ashraf Eassa notes that the HomePod has captured a 70% share of the premium speaker market, which ranges between $200 and $400 (Google recently introduced a $400 Google Max).
Apple also realized a top 16% share of revenue, but that could simply be a function of the high cost of its product. It can sell a lot fewer HomePods and still win on that metric because they're priced seven times more than an Amazon Echo.
A product for every price point
The smart-speaker market is stratifying into three segments: low end, premium, and the recently created super-premium segment featuring smart speakers like Harmon Kardon's $700 Citation 500 and the price-be-damned $2,250 Beosound 2 from Bang & Olufsen.
Yet Apple does seem to realize it needs more than just good sound quality if it wants to remain competitive, and it's adding new features to the HomePod. Updates earlier this year finally let users pair a HomePod with other smart speakers, and more recently users were able to make and receive phone calls. These are features, though, that Echo users have long enjoyed.
And now Amazon has released a bunch of new devices like the Echo Input, Sub, and Link that can connect Alexa to every speaker, TV, and amplifier in a house, making them attractive to audiophiles looking for higher sound quality at a lower price.
While it wasn't a mistake for Apple to establish its place in the premium market, it can't ignore the value end, because that will just give the competition a chance to peel away its customers. It will need a cheaper model if the HomePod is ever to achieve any critical mass.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.